Arena’s Expanded Marketing Deal with Eisai Has Broad Implications

Arena Pharmaceuticals (NASDAQ: ARNA) rode a wave of investor enthusiasm after the San Diego company said last week it has expanded its commercialization agreement with the Japanese drug giant Eisai to cover most of the world. The news sent Arena’s stock soaring Friday (gaining over 17 percent to close at $4.79 a share) and again Monday (closing at $5.30), before settling back to $5.05 a share in regular trading today.

It took me until today to catch up with Arena CEO Jack Lief by phone, but he says, in effect, this is just the beginning.

Eisai began marketing and distributing Arena’s weight-loss drug lorcaserin HCL (Belviq) in the United States about five months ago under terms of their previous agreement, which covered North and South America. The expanded agreement, Lief says, establishes a broader platform with Esai to evaluate other potential uses of locaserin.

Lief says, “First up in our priority list is to start a study looking at [the use of lorcaserin] in smoking cessation.”

Independent preclinical studies conducted by two academic centers indicate that lorcaserin could be effective in helping smokers to quit. Under the terms of their expanded marketing and supply agreement, Eisai and Arena plan to initiate a Phase 2 clinical trial in the first half of 2014 to evaluate lorcaserin for smoking cessation. “If we’re correct, this opens up a very large market that is very poorly addressed,” Lief says.

In the United States, an estimated 43.8 million people, or about 19 percent of all people 18 and older, smoke cigarettes, according to the U.S. Centers for Disease Control. In China, press reports indicate there are more than 300 million smokers. Arena’s Lief estimates that 80 percent of the smokers in China are men.

In a conference call with analysts Friday, Arena executives said terms of their expanded marketing and supply agreement allow Arena and Eisai to also evaluate lorcaserin combined with phentermine to reduce obesity, along with an extended-release formulation of lorcaserin that could be taken once a day, and to explore the drug’s effect on diabetes and cardiovascular diseases.

“There remains significant potential for the chronic weight management market,” Lief said, according to Seeking Alpha’s transcript of the call. “We believe that Belviq represents the much needed innovation in pharmacotherapy to drive the discussion between physicians and patients forward.”

Lorcaserin is Arena’s first drug to win FDA approval. The company was founded in 1997 to discover and develop new drugs for treating cardiovascular, central nervous system, inflammatory, and metabolic diseases. Most of the other drug candidates in Arena’s pipeline remain at an early stage of development. Yet with its lead drug candidate on the threshold of global distribution and with almost 300 employees worldwide, including 220 at Arena’s San Diego headquarters, Lief says the company is well-positioned re-focus on drug research and development.

Under the terms of their expanded agreement with Eisai, Arena said it gets an upfront payment of $60 million and is eligible to receive as much as $176.5 million in milestone payments. Lief says Arena also is eligible to get a total of $1.5 billion in one-time purchase price adjustment payments, based on Eisai’s sales of lorcaserin in countries covered by the agreement. For example, in the third quarter that ended Sept. 30, Arena said it received $1.7 million, or 31.5 percent of Eisai’s $5.4 million in net sales under our agreement, and $300,000 from customer redemptions of a 15-day free-trial discount offer.